Question 3 Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, and the company has just paid a dividend of £0.45 for 2022. The recent dividend has been (a) (b) 2022 0.45 (c) 2021 0.43 2020 0.41 2019 0.39 DPS (£) Company 3 has also in issue loan notes which will be redeemed in 7 years' time at the face value of £100. It pays a coupon interest of 6%. The company has a cost of equity of 10% and a before-tax cost of debt of 4%. It pays taxes at 25%. Required 2018 0.37 Using the Dividend Growth Model, estimate the share price for Company 3. What is the value of each £100 loan note? Suppose you have noted that the most recent share price of Company 3 does not agree with the estimation in (a). Explain what may have accounted for that discrepancy.
Question 3 Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, and the company has just paid a dividend of £0.45 for 2022. The recent dividend has been (a) (b) 2022 0.45 (c) 2021 0.43 2020 0.41 2019 0.39 DPS (£) Company 3 has also in issue loan notes which will be redeemed in 7 years' time at the face value of £100. It pays a coupon interest of 6%. The company has a cost of equity of 10% and a before-tax cost of debt of 4%. It pays taxes at 25%. Required 2018 0.37 Using the Dividend Growth Model, estimate the share price for Company 3. What is the value of each £100 loan note? Suppose you have noted that the most recent share price of Company 3 does not agree with the estimation in (a). Explain what may have accounted for that discrepancy.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 3
Company 3's shares are traded on the London Stock Exchange. It is now 1 January 2023, and
the company has just paid a dividend of £0.45 for 2022. The recent dividend has been
(a)
(b)
(c)
2022
0.45
(d)
2021
0.43
2020
0.41
2019
0.39
DPS (£)
Company 3 has also in issue loan notes which will be redeemed in 7 years' time at the face
value of £100. It pays a coupon interest of 6%. The company has a cost of equity of 10% and a
before-tax cost of debt of 4%. It pays taxes at 25%.
Required
2018
0.37
Using the Dividend Growth Model, estimate the share price for Company 3.
What is the value of each £100 loan note?
Suppose you have noted that the most recent share price of Company 3 does not agree
with the estimation in (a). Explain what may have accounted for that discrepancy.
Suppose Company 3 normally pays out 50% of earnings as dividend. Explain how you
would use a PE ratio to determine the company's share price.
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